Look beyond your neighbor’s fence

The grass is always greener on the other side of the fence, the saying goes.

It refers to the way that most people tend to look at what other people have through rose-colored glasses. Unfortunately, we tend to do the same thing in agriculture.

Too cold, too hot, too dry, too wet. Had I looked over my neighbor’s fence this last spring and early summer, I would have concluded that we had received way too much rain. This would have been true for my neighbor and me. But we tend to generalize local conditions to the whole. Hence, Californians think that the whole country is in a drought, Ohioans that it is too wet, Oregonians think that the whole of North America is too hot, while Newfoundlanders think that we are entering another glacial age.

(For those who don’t know — and you can’t be blame for that — Newfoundland is the Eastern-most Province in Canada. It is roughly the size of Ohio, but with a total population of less than 500,000. Why would anybody want to live there is a good question; the Vikings established a short-lived settlement in the 11th century, but soon abandoned it because it was too inhospitable …).

No sun

If you haven’t followed the recent news, the sun hasn’t shined in Newfoundland for more than a month, and July has been so far the coolest since … well, since the Vikings left the island.

The weather has been so bad — even for Newfoundlanders — that the Provincial police arrested two weathermen and charged them with impersonating a meteorologist, failing to provide the essentials of summer — sunshine, good forecasts and blue skies — and trafficking of rain, drizzle and fog.

Corn

But I am digressing … the point being that if you were to ask your neighbor, his perception of the corn crop this year would not be very good. This may or may not be true of Ohio as a whole, but it is definitely off the mark when it comes to the nation as a whole.

Iowa, for one, has had near perfect “corn weather.” Unless it is hit by an asteroid between now and harvest time, the state might literally be covered by mountains of corn by Thanksgiving.

Milk

Too much milk, not enough milk. Likewise, the state of our national milk production depends on whom you talk to. California’s dairy processors would complain that there is not enough milk, as production in the Golden State dropped by 4.3 percent year-over-year in June. Meanwhile, all of the Midwest (except Ohio) and Northeastern states showed significant increase in production, up to 7.2 percent in Michigan.

The most important figure is that the U.S. dairy output showed a modest increase of 0.7 percent in June. On an average year (something that doesn’t exist), the increase in commercial demand is about 1.5 percent. This would indicate that currently the U.S. milk production as a whole is drifting toward a time of under supply. But a large part of the average 1.5 percent annual increase in commercial demand has been from exports, something that your neighbor is probably mostly clueless about.

Kiwis, Euros, Putin, and China. So what is happening beyond our borders? To start with, Oceania completed its “dairy year” (July to June) showing relatively modest increase in dairy production and for a good reason: prices paid to dairy producers have plummeted to the equivalent of about US$8/cwt. Kiwi dairy producers feel about as good about milking cows right now as you felt in 2009 when we had $10/cwt milk.

Meanwhile, production in the now quota-free Europe has grown by an average of 0.85 percent over the last five months, with Ireland (+10 percent) and the Netherlands (+6.6 percent) leading the parade.

In short, global production is increasing, but definitely not at an alarming pace. So why are world’s dairy prices in the tank? Mr. Putin’s decision to ban import of dairy products from Europe has played a role that, in my modest opinion, has been greatly exaggerated. Russia might not be importing from Europe, but Russians didn’t stop eating butter — the biggest factor has by far been China. Its import of milk powder was a dismal 65.8 million pounds in May, down 53 percent from a year ago. There is a lot of milk powder in storage, both whole and nonfat.

This explains the dismal nonfat dried milk (NFDM) spot prices on the Chicago Mercantile Exchange (CME), which dropped to pot price of 70.5 July 23 and closed July 24 at 71.25/pound To put this in perspective, NFDM was priced above $1.10/pound just this last February, and we thought then that these were horrible prices. Where to from now?

Exports

What domestic milk prices will do is anyone’s guess. The U.S. dollar is strong, which negatively impacts our exports. In spite of this, U.S. dairy exports have not fallen precipitously. In the last few years, the reputation of the U.S. as a reliable exporter of dairy products has improved immensely, which explains our still significant volume of dairy exports. The domestic demand for dairy products, especially cheese and butter, has been and remains very strong in spite of historically high butterfat prices.

Altogether, we should expect interesting (but not outstanding) protein and fat component prices in the near future. The price paid for other solids (lactose and minerals, which represent about 5.7 percent of milk volume) will probably not cover the feed costs required for their production.

So if money is to be made, it will be on the 7 pounds of protein and fat in an average hundredweight of milk. Nutrition plays an important role in the fat and protein content of milk. Thus, if your herd is under performing in terms of fat and protein content, then it might be a good time to talk to your herd nutritionist.